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Navin Fluorine’s (NFIL) 4QFY23 EBITDA beat our and consensus estimates by 22% and 12%, respectively, on account of i) jump in CDMO sales partly on account of partial execution of purchase order, and ii) gross margin expansion due to higher contribution of CDMO and HFO sales. Going forward, we believe that incremental contributions from i) commissioning of R32 in 2QFY24, ii) additional volume from HFO capacity debottlenecking in 4QFY24, and iii) higher contribution from additional volume from CDMO and MPP units should maintain FY24 growth momentum in check. Besides, there is one new agro molecule in the pipeline for which the company could undertake a small capex; it could get commercialised in 2HFY24. We have not considered this in our estimates. This along with any new capex announcement could further improve earnings visibility beyond FY25/FY26. We feel even more assured of capex translating into higher returns after witnessing successful execution of various projects in FY23. To factor in FY23 results and commentary, we have marginally raised our FY24/FY25 EPS estimates by 1-2%. We maintain BUY with a revised Jun’24 TP of INR 5,495 (from Mar’24 TP of INR 5,080) based on 36x Jun’25E EPS (DCF implied). Navin>Clean Science is our pecking order in the mid-caps space.

Jump in CDMO sales drives sales beat: Navin Fluorine’s (NFIL) 4QFY23 consolidated gross profit came in 25% above JMFe and stood at INR 4.1bn (up 30%/95% QoQ/YoY) as revenue was 20% above JMFe at INR 7.0bn (up 24%/70% QoQ/YoY) and gross margin was significantly higher than anticipated at 59.3% (vs. JMFe of 57.0% and 56.3% in 3QFY23). As a result, EBITDA came in 22%/12% above JMFe/consensus and stood at INR 2.0bn (up 30%/114% QoQ/YoY), more than offsetting higher-than-anticipated other expenses of INR 730mn (vs. JMFe of INR 710mn and INR 686mn in 3QFY23). Further, PAT was 19%/13% above JMFe/consensus and stood at INR 1,364mn (up 28%/81% QoQ/YoY). During the quarter, the sales beat was primarily driven by significant increase in CDMO sales, which stood at INR 2.0bn (vs. JMFe of INR 1.0bn, up 62%/105% QoQ/YoY). In 4QFY23, specialty chemicals sales was 2% ahead of JMFe and stood at INR 2.0bn (up 10%/28% QoQ/YoY) and Inorganic Fluorides, Ref Gas and HPP sales were 3% ahead of INR 2.9bn (up 14% QoQ).

Maintains guidance of margin improvement on annualised basis: During the quarter, the company supplied a significant part of its purchase order (PO). Some of the volume from this PO will flow through in FY24. On a full year basis, the management remains confident of achieving 20%+ YoY growth in the CDMO business. At present, contribution of new customers is lower. However, this is likely to increase, going forward. On the margin front, the company has maintained its margin improvement guidance on a full year basis. However, on a sequential basis, margins could moderate due to lower contribution from HPP on account of planned maintenance shutdown and lower CDMO sales.

Expect 34% EPS CAGR over FY23-26E; maintain BUY: Within our specialty chemicals coverage, Navin Fluorine has one of the highest EPS growths at ~34% over FY23-26E. We maintain BUY with a revised Jun’24 TP of INR 5,495/share (from Mar’24TP of INR 5,080 earlier) based on 36x Jun’25E EPS (DCF implied). Financial Summary (INR mn)

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